FINANCE Corporate financial policy and R and D Management

the period (i.e., N–outis equal to the average value of the number of shares

outstanding at the beginning of each month over the previous three

months). Then, STOQ is computed as 4Vq/N–out.

3.STOM: Share turnover over the past month. This is computed as the
share turnover rate using data from the most recent month (i.e., it is equal
to the number of shares traded last month divided by the number of shares
outstanding at the beginning of the month).

4.STO5: Share turnover over the past five years. This is equal to the annu-
alized share turnover rate using data from the past 60 months. In symbols,
STO5 is given by:

where Vsis equal to the total trading volume in month sand N–outis the av-

erage number of shares outstanding over the past 60 months.

5.FSPLIT: Indicator for forward split. This descriptor is a 0 – 1 indicator
variable to capture the occurrence of forward splits in the company’s stock
over the past two years.

6.VLVR: Volume to variance. This measure is calculated as follows:

where Vsequals the number of shares traded in month s, Psis the closing
price of the stock at the end of month s, and σεis the estimated residual
standard deviation. The sum in the numerator is computed over the past
12 months.

Growth

1.PAYO: Payout ratio over five years. This measure is computed as follows:

PAYO= =

=

∑

∑

1

1

1

1

T

D

T

E

t

t

T

t

t

T

VLVR=















∑= 

log

12

T 1

VPss

s

T

σε

STO5=















∑= 

12

1

T 1

Vs

s

T

σε

230 THE USE OF FINANCIAL INFORMATION IN THE RISK AND RETURN OF EQUITY